If I would have invested in these companies in 2011 or not if no then what could be the possible reason from my investment checklist.

Company

If avoided, Why

MMTC

PSU, Operational efficiency

JP Associate

Group of company

Jindal Steel

Commodity, No unique product

Unitech

Real Estate

JayPee Infratech

High Debt

JP Power Ven

Power Sector, No pricing power

KSK Energy Ven

Power sector, No pricing power

Hind Copper

Commodity, No unique product

Alok Inds.

High Debt

GVK Power

Power sector, No pricing power

Shree Renuka Sugar

Commodity, No unique product

Amtek Auto

High Debt

Punj Lloyd

high Debt

BHEL

PSU, Operational efficiency

SAIL

Commodity, No unique product

Rel Power

Power sector, No pricing power

NMDC

PSU, Operational efficiency

Rolta India

High Debt

HDIL

Real Estate

Rel Comm

Telecom Sector

Jai Corp

Group of company

IDFC

High Debt

MTNL

Telecom sector

Luckily all 23 companies would have been avoided and this gives me a sigh of relief. Let me explain the above short answers in detail.

PSU – PSU companies have tough time attaining high operational efficiency and also lags research and development.

Group of Companies – I avoid group companies as which business brings how much profit becomes difficult to assess.

High Debt – High debt and no focus on reducing it has always been a no for me.

Real Estate – Management even if they are honest, sector deals with so much under the table deals (land deals, municipal approvals …) that you cannot rely only on balance sheet and profit and loss statements.

Commodity – Commodity producing companies don’t have pricing power and rely only on operational excellency to make profit as commodity price is always fixed. Lowest producer of the product will always have an upper hand.

Power Sector – Yet another sector similar to commodity with no pricing power and need operational excellency to remain profitable.

Telecom Sector – A price competitive sector with no pricing power.

Classifications

Let us classify the above 23 companies.

PSU – 3

Group of companies – 2

Commodity – 4

Real Estate – 2

High Debt – 6

Power Sector – 4

Telecom Sector – 2

Debt is the biggest reason for companies that perform badly.

If we combine commodity, power sector and telecom companies under one roof of no pricing power, it becomes the single biggest reason of wealth destruction.

Conclusion

When the market corrects, portfolios are in losses and it is the time when you should validate the process of identifying stocks to see if you can find any false positive in your approach.

Investment can flourish if and only if we can identify good future businesses and two most important aspects of safe investing are low debt and how well the company can price their products or if it is a commodity company, are they the lowest producer of the commodity.

Wanna invest in the right stock at the right price & at the right time.

Shabbir Bhimani

Disclaimer - Trading has large potential rewards, but also has large potential risk. You must be aware of the risks and willing to accept them in order to invest in market. Don't trade with money you can't afford to lose. This website is neither a solicitation nor an offer to trade in market and is meant for education purpose only. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed on this website. The past performance of any trading system or methodology is not necessarily indicative of future results. Full Disclaimer | Privacy Policy